What is Mortgage Fraud?

The Federal Bureau of Investigation (FBI) defines mortgage fraud as a “material misstatement, misrepresentation, or omission in relation to a mortgage loan which is then relied upon by a lender”.  In simpler terms, mortgage fraud is a lie that influences a bank’s decision on whether or not to approve a loan, accept a reduced payoff amount, or agree to certain repayment terms.

This definition makes it clear that mortgage fraud can be perpetrated by both industry professionals and individual borrowers, and is a very serious crime. Mortgage fraud leading to speculative lending is what primarily led to the subprime mortgage crisis and economic recession of 2008.

Fraud for Profit and Fraud for Housing

There are two main categories of mortgage fraud – fraud for profit and fraud for housing. Those who commit fraud for profit are typically aimed not at securing housing, but rather at abusing the lending process to steal cash and equity from lenders or homeowners. This type of mortgage fraud is usually committed by insiders in the industry who have access to unique and specialized knowledge and authority.

This includes people such as bank officers, appraisers, mortgage brokers, attorneys, loan originators and other industry professionals. Fraud for housing occurs when an illegal action is taken by a borrower to acquire a home. Typical examples of this include a borrower misrepresent income and asset information on a loan application or enticing an appraiser to manipulate the appraised value of a property.

Common Mortgage Fraud Schemes

Straw Buying – As it relates to mortgage fraud, straw buying occurs when someone with good credit consents to use their name and personal details to obtain a mortgage loan but has no intention of living in the home. Often times straw buyers will be offered money or other items of value in exchange for using their information. These types of scams can lead to inflating the value of a property by an appraiser or even loan modification schemes where the participants split the proceeds of the deceit. Those involved in these schemes can end up being sued by the lenders, as well as prosecution under federal law.

Air Loans – An air loan is a type of mortgage fraud when a mortgage broker completely manufactures both a property and a borrower, neither of which actually exist, and submits false paperwork to obtain a loan for the fake transaction. The mortgage broker then collects his or her proceeds and commission on the fake transaction. Once the loan goes into default, which will inevitably happen given that no borrower actually exists to pay the loan, and there is no actual house to repossess, the lending bank then loses everything. This type of mortgage has steadily become less and less prevalent, as lenders are required by law to conduct due diligence on borrowers and properties.

Double Selling – Double selling is a type of mortgage fraud that occurs when a mortgage broker submits a mortgage loan application to multiple lenders. If more than one lender agrees to fund the transaction, the broker will then schedule the closings within a few days of each other, so that neither knows about the other, but both pay out the same loan. Double selling can also occur when an individual homeowner sells a property twice, obtaining funds from each buyer.

Foreclosure Rescue – Foreclosure rescue is a type of mortgage fraud scheme that targets homeowners facing foreclosure. A homeowner will be presented with an offer to pay off their mortgage for a fee, when in most cases, the fee is collected and the mortgage is never paid. These foreclosure rescue scams can be difficult to prosecute as often times it is hard to locate the perpetrator once the scam has been run. Nonetheless, it is still a crime under federal law and can be prosecuted just the same as any other mortgage fraud crime.

Federal Law and Penalties for Mortgage Fraud

There is no central and dedicated agency to investigate instances of mortgage fraud. Consumer protection agencies such as the Federal Trade Commission (FTC), as well as the FBI and the IRS all work with one another to combat these crimes. Cases prosecuted at the federal level can be charged as either felonies or misdemeanors, depending upon the organizations involved as well as the amount of financial loss. Penalties may include up to 30 years in prison and up to $1 Million in fines, as well as restitution.

 While there have been several laws criminalizing mortgage fraud on the books for quite some time now, the most recent changes have really expanded the government’s reach and authority when it comes to prosecuting mortgage fraud. Following the mortgage crisis in 2008, President Obama signed into law the Fraud Enforcement and Recovery Act (FERA), which was passed in 2009. Investigations under FERA can also lead to additional charges of bankruptcy fraud, tax fraud, and even RICO (Racketeer Influenced and Corrupt Organizations) charges, each carrying their own separate penalties. Additionally, FERA increased the statue of limitations (the amount of time the government has to bring charges) from five years to ten years.

Whether a person may have been accused of intentionally inflating the value of their property, overstating their income on a loan application, or colluding with an investor to purchase a home, it is important to take any federal mortgage charges seriously. Attorneys who are familiar with the elements of these types of crimes, as well as the process of defending against federal prosecutors are an invaluable asset to any person being investigated or who has been charged by the federal government.


The law is very nuanced. Federal prosecutors have almost unlimited advantages and resources at their disposal. Having attorneys on your team that understand the law, keep abreast of legal developments in the law, have the experience dealing with the complexities of federal statutes and, finally, possess the skills to stand before a jury to make a compelling case on behalf of a client are not just important qualities, they’re critical. At The Federal Defenders. we pride ourselves on being advocates for our clients. With decades of experience with all variety and manner of federal criminal issues and defenses, we understand what it takes to put our clients in a winning position. For a free and confidential consultation, call us today at (800) 712-0000. Just like our toll-free number, we operate nationwide.